Convertible Debt – A Tool for Banking Recapitalization

Oluseun Paseda and Petersen K. Ozili
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Oluseun Paseda: Department of Banking and Finance, University of Ibadan, Ibadan, Nigeria
Petersen K. Ozili: Governors Department, Central Bank of Nigeria, Abuja, Nigeria

Economic Analysis Letters, 2025, vol. 4, issue 2, 26-41

Abstract: Convertible bonds are hybrid securities that offer the unique characteristic of being convertible into equity shares of the issuing company at the discretion of the bondholder. This study attempts to explore the features of this hybrid financial instrument with a focus on deposit-money banks’ application of this asset class in corporate finance. This paper explores the potential of convertible bonds as a strategic instrument for the recapitalization of Nigerian banks. Given the evolving financial landscape and the need for robust capital structures, convertible bonds offer a hybrid financing solution that combines the benefits of debt and equity. This study examines the theoretical underpinnings, practical applications, and potential benefits of employing convertible bonds in the Nigerian banking sector or any banking system whatsoever. The findings suggest that convertible bonds can enhance financial stability, provide flexibility in capital management, and align the interests of investors and bank management.

Keywords: Convertible Bonds; Capital Structure; Corporate Finance; Bank Recapitalization (search for similar items in EconPapers)
Date: 2025
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